Today’s application software implementers/channel partners are a courageous bunch. The technology is shifting and the way vendors interact with partners is changing too. One of the more pronounced change drivers is the spike in recent software vendor acquisitions. Post-acquisition, partners of one or both firms will wonder if they’ll still be needed or made redundant.

Over the last few years, a number of partners have called me to complain that some cloud vendors aren’t too fond of having them implement their software. It seems more and more vendors want to take over the implementation tasks. This diminishes the role and opportunity for third parties and reduces the addressable market for some integrators. While I understand the vendor’s perspective, especially as it relates to early customer success, some integrators need to look inwardly and realize that some of their prior behaviors may have forced these changes. If you’re an integrator that did the following, you deserved to lose this business:

Put your interests ahead of the clients’ interest

Tried to implement cloud solutions with the same old, barely changed on-premises methods, people, best practices, etc. you’ve used for decades

Sent all your big trade show booths (and marketing budget) to the old on-premises vendor shows and not to those of cloud partners

Tried to force the cloud software vendor to host their solution on your BPO and other data centers

Never created a dedicated cloud practice

The last couple of months, I’ve spoken with a number of application software channel partners. These partners fall broadly into two camps: those looking to the future and those that are enslaved to the past. What are leaders doing?

Re-evaluating the portfolio

The best channel partners keep adjusting their solution mix to align with growing, relevant vendors. Today, the smart partners are betting on vendors with long runways. Today’s customers want partners and vendors that have already nailed the SMAC (social, mobile, analytic and cloud) technologies and have proofs-of-concept of new AI/Machine Learning/Algorithm based applications.

These partners have no use for vendors that are still fighting the old wars re: cloud and multi-tenancy. If a channel partner or vendor is still clinging to on-premises, they’re living in the past. During a recent industry analyst Q&A, an audience member commented that her firm is still debating cloud vs. on-premises. I told her that software vendors quit developing on-premises applications a decade ago and that vendors are already moving beyond cloud to new technologies like artificial intelligence. Sadly, for some integrators that don’t want to stay current, they’ll need to retire. For others, it’s time to re-evaluate their solution portfolio.

Moving to underserved white spaces

Some software ecosystems have tens of thousands of channel partners attempting to serve prospective customers. These crowded markets often pit several partners against each other to win new business in overly competitive markets. While an economist might argue that this leads to more efficient solution implementations, it also means lower margins, high cost of sales, etc. for the partners involved.

The integrator market for large, older ERP vendors is very crowded. While these old school vendors have been re-making a number of their products, their largest implementers have seen the demand for their ERP design-build-run, ERP applications maintenance, and other ERP offerings decline. To compensate, they’ve dumped thousands of personnel into the new cloud-based offerings. Where the major integrators hope to win is in locking up several key verticals and marrying new digital solutions with ERP products.

The better partners are looking for more balanced markets. Ideally, these partners want markets that are fast growing and under-served by existing partners. The current gold rush for aspiring partners is in (real) cloud-ERP solutions from vendors with both healthy order books and a growing reputation for success.

The best partners are looking at the totality of the software ecosystem. They seek out underserved markets and then erect competitive barriers to freeze out competitors. They avoid markets that the vendor itself may enter as well as those populated by lots of traditional competitors.

Moving big-time to verticals and micro-verticals

For businesses wanting modernized, transaction processing solutions (e.g., Finance, HR), then local partners can often fill the bill. However, the future may rest with integrators offering deep vertical expertise.

Vertical expertise will become especially important as new analytics, algorithms, etc. get inserted into ERP solutions. Customers will need partners that truly understand their business and industry. They need metrics, dashboards, workflows, insights, etc. that only people with intimate knowledge of their business understand. How else will someone quickly, efficiently and correctly adjust algorithms, identify anomalies, etc. without this knowledge? They can’t. The vertical is key to future channel success.

The very best partners are developing their own IoT (internet of things) integration capabilities, industry dashboards and new industry-specific KPIs. They do this as a major competitive differentiator and because it helps them both win new work and deliver new services.

Staying out of the janitorial business

While every market needs someone to clean things up, the software janitorial space isn’t very big but it does require a different set of skills. In the software industry, customers will sometimes need an integrator with knowledge of an old, possibly obsolete software product. But often that’s a romantic or nostalgic market space that customer’s often handle without an integrator’s help.

The successful janitors provide services that differ from typical integrators. They offer tax table, regulatory and security upgrades to old products. They might also provide a service to maintain integrations between the affected application and other customer applications. They might even have a bench full of COBOL, FORTRAN and Assembler programmers for those rare application patches.

But the numbers aren’t there for most integrators. This market is small compared to the market for implementing net-new solutions. Smart integrators and channel partners don’t get driven into this space unconsciously.

Figuring out the mid-market

Early in my career, I learned that it costs as much to sell a $25,000 project as it does a $2.5 million deal. Other folks have figured that out, too. Software vendors continuously move up-market as their products gain in features and functions. But, too often, channel partners seem to linger at a given market plateau.

While thousands of integrators exist to serve small firms, few really do a great job of serving the mid-market. Why? Mid-market firms often have champagne tastes and beer budgets. Mid-market firms usually need more than a ‘local’ partner that only serves clients within a 100-mile area. They need someone who can deal with their geographically dispersed firm. They need someone who understands the complex accounting of a multi-division business. They need someone who can cope with the regulatory issues they face. In short, they need more than a basic implementor.

The mid-market space is still underserved. Too few integrators know how to scale beyond a couple of dozen employees and into numerous geographies. Too few understand how to create a network of like-minded partners in other geographies to complete ever larger deals. And, too few large integrators really understand how to serve this market economically.

The winning small partners are developing more complete competencies in areas like program management, change management, financial accounting, revenue recognition, big data, etc. They’re upgrading their sales and marketing practices and personnel to win bigger deals – even taking some away from large global integrators.

Helping clients modernize (Not live in the past)

The best channel partners today help clients clear out their patched together, best of breed, spreadsheet-intensive collages of old software products. They push clients into a more modern toolset of applications instead of enabling their dependency on familiar but out-of-date products.

Sometimes the only viable solution in a given vertical is old, but, great partners in those spaces should be building out vertical functionality in newer, more modern software products to help customers get ahead. There’s a reason the better vendors today have created applications on powerful new platforms and infrastructures: to facilitate the rapid development of modern vertical solutions. Great partners don’t install old products – they make newer products more accessible to large numbers of buyers.

Reskilling for the future

New software products require new skills. The best channel partners are already identifying new training requirements and hiring needs. Where will they get the needed math, quant, social science, data science, statistics, artificial intelligence, big data, etc. skills that their customers will soon demand?

The very best partners are already staking out new spaces, creating prototypes of new application extensions, investing in R&D, identifying new training needs, etc. They’re even staking out new recruiting sources. And they do this because they know one key truth: change is not only inevitable in technology but in services, too.

It’s not me, it’s you

Sometimes channel partners have to cut their ties with their old vendor. Like any breakup, it can be hard. Some channel partners try to drag it out and end up being sort of committed to multiple vendors at once while ensuring they’re committed to none of them. Many are terrified of breaking things off abruptly as it could adversely affect current year’s earnings.

Knowing when a relationship has run its course is key. Staying in a relationship beyond its useful life is just painful. When I was leaving a vendor event in Columbus recently, I walked out with a channel partner that was still selling and supporting a product line that belonged in the software antiquities museum. She admitted that their firm just hasn’t had the courage to change – and it’s killing them. I’ll never forget my old boss at Accenture who would remind the partners of one maxim: “We must have the courage to change in spite of our success.” How true.

My take

Today’s ERP space differs materially from just a couple of years ago. It’s gotten smarter (via AI), bigger (via big data) and moved beyond internal transaction processing. When the software market changes, the channel must change as well. As a result of these changes, today’s channel partners have to quickly pick new vendors, new verticals, new needed skills, etc. If they don’t, they become irrelevant.

Some channel strategies won’t work. No channel partner or integrator can successfully fight change. They can’t improve their market success by doubling down with more old and irrelevant solutions. And, they can’t count on nostalgia to drive future profits either.

The first priority for channel partners is to pick software vendors with great long-term potential (i.e., runway). Does the vendor possess:

Some of the most modern apps out there

A great R&D team

The capital required to develop all-new products

A vibrant channel program

A willingness to share the implementation activities with its channel partners

Joint marketing programs to aid the vendor and the channel partner as both secure net-new business

Examples of its future IoT, AI, ML, big data, etc. applications

A powerful platform as a service (PaaS)

Its own IaaS (infrastructure as a service)

A library/store of reusable components for its algorithms, dashboards, etc.

Next, channel partners must transition away the vestiges of the old software world and make way for a new set of realities. Older offerings, like BPO, application maintenance, etc. may need to be pared back or sold off. The temptation to hang onto these will be great, but, they’ve got to go.

Newer offerings will likely require new skills or the re-skilling of existing personnel. Concrete development and recruiting plans must be created. Transitions of this scale are tough. Not all executives and employees will want to (or can) make the journey.

At this time, the integrator may want to do some serious market assessment. They’ll want to pick out the best verticals to pursue and how they’ll go to market gaining business in these segments. That assessment would also need to examine what kinds of vertical applications/analytics/etc. will need to be developed. A product roadmap and marketing plan should be the main outputs here.

Today, I see several older vendors applying the more-is-better kind of thinking with regard to channel partners. This me-first attitude may help their top line but cripples its partners (and for many vendors, the partners are their economic lifeline).

Finally, I’ve had more than a couple of heart-to-heart conversations with the leadership of several partner firms. These companies had grown significantly over the years but were singularly focused on one and only one vendor. This exclusively is dangerous for growing channel partners as the ‘love’ you think that exists between your firm and the vendor is illusory. Vendors will dump you as soon as they can create a relationship with an even larger (e.g., Big 4) integrator. Vendors might agree to steer all of the big deals away from your firm. Smart partners diversify their vendor portfolio and to reduce risk to the firm.